Demand firming for industrial space

Investor and tenant demand for premium industrial space is set to surge in 2012, while the market remains ambivalent towards secondary-grade stock.

A lack of new development following the global financial crisis is underpinning leasing and investment demand for A-grade industrial assets, and agents are tipping further space requirements from online stores, large retailers and third-party logistics operators along the eastern seaboard.

“Logistics and retail firms are driving demand, however there is a diverse mix of other firms requiring space," said Colliers International director of industrial research, Mark Courtney.

Mr Courtney said this trend would gain traction in 2012 as retailers pursued supply chain strategies and looked to take large volumes of space as they expanded their e-commerce platforms.

He said the resources sector was contributing significantly to demand in Perth and Brisbane, but Australia faced a shortfall of 200,000 square metres of prime-grade industrial space, led by Brisbane and Melbourne.

“Some of the largest players, including DEXUS Property Group, Australand and Goodman, are responding with a steady increase in speculative construction, predominantly in Sydney and Melbourne."

“There are Australian businesses out there making solid profits but are not committing to capital expenditure until the global market settles and the medium-term outlook for the world economy is clearer," he said.

Savills national head of research Tony Crabb said Savills expected modest growth in volumes of “build and lease" development projects to return to Brisbane, Sydney and Melbourne in 2012.

“Over the next year, Savills expects industrial rents to be relatively stable. However, the lack of prime-quality stock is yet to place upward pressure on rents in most industrial areas. We may see these pressures building towards the end of the year," he said.

“Land values have remained relatively unchanged over the past year and there are some indications of a modest recovery."